This is a “what if” interview from the World Economic Forum’s Risk Response Network. To view the rest of the series, click here.

As the U.S. stands at the brink of the fiscal cliff, the narratives of decline are legion. The World Economic Forum, in collaboration with TIME, spoke with Tyler Cowen, a professor of economics at George Mason University and author of The Great Stagnation, on the economic history underlying the current dysfunction. He warns that innovation in the U.S. has reached a plateau and a long period of stagnation awaits.

What makes you think America’s golden age of innovation is in the past?

I was born in 1962. When you think back to the world of my childhood, in the Sixties and Seventies, it’s not that different from the world of today, in many ways. The experience of driving a car or flying a plane hasn’t changed much. A person from that time would be able to use a modern kitchen without thinking twice. Computers represent a big difference in our daily lives, but that’s just one dynamic sector. In contrast, if you think back to the period from 1900 to 1950, everything changed, in the United States as in Western Europe: people moved off the farms, people got electricity, people got running water, people got antibiotics, people got automobiles, planes started flying, radios and televisions appeared in ordinary homes. There were huge advances in just about every sector, and we’re not keeping up with that now. We had this unprecedented burst of progress and it’s really hard to have a comparably impressive second act.

How has this played out in the economy?

Well, since the recession ended in 2009, median income has actually gone down by about five to six per cent, which is not a good sign. Over the longer term, median income now is about where it was in the late Nineties, so that’s more than a lost decade in terms of progress in living standards. Interestingly, there’s a gender split. Median male wages were actually higher in the Sixties than today, which is stunning, while women have reaped the benefits of more education. Although there have clearly been gains, overall it’s far, far slower progress than anyone expected.

Do you expect more stagnation ahead?

If you just look at the last quarter as an example, the U.S. had just two per cent GDP growth, with a huge chunk of that coming from the Defence Department, which does not represent an improvement in how people live. The recession is supposed to be over. We have slow growth – and we’re still the envy of the developed world. We’re already mired in stagnation. So I think what it will look like say 10 to 15 years down the road is that the United States will be in a fiscal position similar to where Italy is today. Italy has not had rapid economic growth for quite some time. I don’t think the U.S. will ever look like Greece or Spain, but if you spend a lot and accumulate debt and don’t have much growth, things become very dire. At some point people start wondering if you can actually pull off the mix of spending cuts and tax increases which you will need.

Why has innovation stagnated?

There’s a bunch of different reasons, but the most fundamental is that there are some plateaus beyond which further innovation is hard. So say you invent the car and then you give people cars. It’s an awesome advance. Then you spend 60 years improving cars, giving them more comfortable seats, better sound systems and side air bags, that’s all great, but it just doesn’t match up to developing cars. So, you might think that in a much longer term future, we’ll have flying cars or teleporters, and maybe we will, but that’s not in the next 10 years.

Weren’t we supposed to have flying cars by now? What happened to the utopian predictions of the Sixties?

I think back then people overestimated the extent to which we would be able to get our hands on ever cheaper and cheaper energy. Fossil fuels powered the huge advances of the first half of the twentieth century, but the same won’t be said of the twenty first century. Also, I think improving transportation is just harder than people realise. Flying cars do actually exist, but they are expensive and dangerous. Driverless cars are probably the next big advance, and those will be great, but again you are talking 20 years out from now.

Another reason for stagnation is that our educational system isn’t improving at a very rapid pace anymore. So if you look back to 1900, when only six per cent of the US population graduated from high school, you could get huge gains by just sending more smart, motivated kids to school. Now the graduation rate is in the high sixties in percentage terms. You could make sure those students are getting a better education, or you could get better at reaching out to that remaining 30% or so, but all of that is much harder to do and I would say that institutionally, we’ve not always made the best decisions compared to some other countries.

If there’s no follow-up to the great burst of innovation, what will America look like in the future?Well, I think the most likely scenario is that computers and the internet and smart phones will continue to form a dynamic sector. Artificial intelligence will improve. You’ll have a subset of the population who are very good at using those things, and very good at working with them. It won’t be just a small handful of people — we’ll be looking at maybe ten or 20% of the population. They will become much, much wealthier. For everyone else, wages will be stagnant in real terms, with a slight decline if globalization intensifies.

Even though it’s already brought us real gains, computing is still in its infancy, I’d say. The 21st century will come down to the question: is the computer as important as fossil fuels were? The answer depends on for whom. The fossil fuel boom benefitted almost everyone, but computers may not quite work out that way.

Who will be worst off in a stagnant America?

The people who do jobs where they’re basically competing against computers or against artificial intelligence. People with good technical skills, or just people who are really good managers or marketers, will do phenomenally well.

How will this play out on the world stage?

The other developed nations, like Japan and the countries of Western Europe, will follow broadly similar patterns. In terms of America’s influence, that’s been diminishing for a while, but you have to bear in mind that other countries have been diminishing too. If you look at the difference in clout between the U.S.S.R. to Russia, that’s taken a bigger fall. China, meanwhile, is an open question. It could get a lot stronger, but it could actually get weaker too. I don’t think there’s any simple narrative.

For the last 40 years or more, the Western world hasn’t actually changed that much. Now, all of a sudden, it’s starting to change more rapidly. I think people will be surprised by just how many institutions or even countries can get left behind. That’s part of the underlying tale of the Eurozone crisis. Everyone is focused on the bond rates and the currency, overlooking the notion that the world is totally changing, and if some countries aren’t right on it, it’s going to be pretty dire for them.

What can be done to reinvigorate innovation?

We should pay greater heed to science, both in terms of its social standing, but also in terms of public policy. We should get much more serious about education. While the government does need to provide better schools, ultimately just spending more money won’t do it: it has to be a cultural shift. Some modified model of the Asian style of parenting needs to spread to more families.

On the business side, there’s too much regulation and litigation, which stifles innovation. In my view there are two main areas that we don’t regulate nearly enough: finance and climate change. In most other areas though, regulations have become obstacles, and I would get rid of 70 to 80% of them.

Is there any silver lining to a stagnant future?

Well, I sometimes say I am a wage and revenue pessimist, but a happiness optimist. I think people will adjust in a lot of ways and in fact will, on average, be happier than they are today. Looking at the US, in terms of issues like diversity and social tolerance, I think it’s a much better country than it was a few decades ago. People with stagnant wages move and breathe life into new areas. Although you can’t avoid the reality on the revenue side – people need to pay bills, governments need to pay off their debts – this isn’t just some tale of unrelenting misery.